Public Accounts Committee on May 19th, 2016

[Bill Matthews]

Yes.

[David Christopherson, NDP, Hamilton Centre, ON]

Very good.

Do I have time, Chair?

[The Chair, Conservative, Kevin Sorenson]

Yes, you have one minute.

[David Christopherson, NDP, Hamilton Centre, ON]

I'd like to return to the issue of the environmental liabilities increasing by $1.2 billion in 2014-15. I think it was Mr. Matthews who mentioned that four or five sites account for about 65% to 70%, if my notes are correct. Is that a mix of public and privately owned land, or is it more one than the other?

[Bill Matthews]

The big ones, Mr. Chair, were private at one stage, but the government is always the ultimate risk holder in these cases. Think about Faro Mine and Giant Mine. These were initiatives that were at one stage in the private sector's hands, and in fact the government now is basically responsible for them.

The other big ones—because I have found my list, Mr. Chair—are Port Hope and Port Granby, the other two I mentioned, and also Esquimalt Harbour. Esquimalt Harbour, I think, has traditionally been public sector-owned. Some of these other ones are things the government inherited from private sector organizations that went bankrupt. Environmental standards were quite different, way back when.

Giant Mine and Faro Mine together account for more than $2 billion. That's the big chunk of this liability.

[David Christopherson, NDP, Hamilton Centre, ON]

I'm troubled by the fact that it used to be private when it was profit-making, and then suddenly, when there was a liability, lo and behold, it becomes the property of—guess who—the Canadian taxpayer.

I just want to drill down a little bit. I don't have a lot of time.

I'm not going to do any drilling, am I, Chair?

[The Chair, Conservative, Kevin Sorenson]

No, actually. The drilling is done.

[Voices]

Oh, oh!

[David Christopherson, NDP, Hamilton Centre, ON]

Well, anyway, I was hoping to.

Thank you, Chair.

[The Chair, Conservative, Kevin Sorenson]

Thank you.

We'll go back to the government side.

Ms. Shanahan.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

I'd like to understand a bit more about what performance measures we should be looking at in the statements. If I go to the debt-to-GDP ratio, could someone walk us through a little bit what we should be looking for there and provide comparables with other countries?

[Bill Matthews]

I think that's probably best answered, Mr. Chair, by my colleague from the Department of Finance.

[The Chair, Conservative, Kevin Sorenson]

Mr. Leswick.

[Nicholas Leswick]

The debt-to-GDP ratio is effectively a crude metric, with debt on top, as we calibrate it. It's just the total accumulated deficit of the federal government over the size our economy. It really just gives an indication to two primary audiences: one is investors, the folks who hold our bonds and expect coupon payments on our debt; and the second is taxpayers. The debt-to-GDP ratio is effectively the general debt dynamics of the country, our ability to service our debt based on the size of our economy.

Whereas we had more adverse debt dynamics in the 1990s, through fiscal consolidation efforts on the part of both governments over the last decade and a half, we have gotten our debt-to-GDP ratio down to about 30%. The net debt of the federal government represents 30% of the total size of the economy.

It gives you a sense of our ability to service our debt obligations.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

When we compare that against other OECD countries, where do we stand?

[Nicholas Leswick]

That comparison is on page—

Excuse me, Mr. Chair. I just want to make sure everyone has the right page in front of them.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

It's page 1.20.

[Nicholas Leswick]

To get to a level of international comparability there have to be some kind of inputs and outputs so that we're all talking about the same type of debt. For basic understanding, we have a highly decentralized federation, in the sense that there are many spending obligations that rest with the provinces compared with a place such as Germany, which is highly centralized. To get to a comparable total government net debt-to-GDP comparison, we have to establish the international comparability to get to the same kind of calculation for net debt.

To answer your question directly, you can see that far and away Canada has the best kind of debt dynamics among G-7 partners.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

I guess I would ask this of the Auditor General: When we're looking at risks going forward, is this a matter of concern?

[Michael Ferguson]

If you look at the front section of volume 1, the financial statement discussion and analysis section, you see significant improvement over the last 20-odd years in the performance of the federal government.

I think it is important, as was just mentioned, to remember when looking at things such as level of net debt and net debt-to-GDP, that in Canada there is only one taxpayer. The level of debt of the provinces is also important when making the comparison to total GDP, because the GDP for the country is what it is. I think there has been significant improvement.

There has always been a bit of an issue of trying to identify what an appropriate level of net debt-to-GDP is. I don't think anybody has ever said that X is what a country's net debt-to-GDP should be.

The risk lies with such things as interest rate increases. You can see that in 2015, out of $280 billion worth of spending, $26 billion is for interest expense. If there were significant increases in interest rates—which would be accompanied by increases in inflation, of course—those types of things could cause a significant impact on the federal government's bottom line.

Fundamentally I would say there has been significant improvement. I think the government is in a good place at this point, but there are risks to be aware of.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

Okay, very good.

Is there time?

[The Chair, Conservative, Kevin Sorenson]

Mr. Matthews was going to answer as well.

[Bill Matthews]

You asked about performance measures.

Debt-to-GDP, when making comparison between countries, is a good ratio to use. The other one that might be relevant for you, if you're looking for an independent one, is credit ratings. If you look at Moody's or Standard & Poor's and the credit ratings of the various institutions, the Government of Canada's is as good as it can be. If you're looking for an external validation, that might be useful.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

Excellent.

Just as a quick question, you mentioned something, Mr. Leswick, concerning one-off gains. I'm wondering where we can get a better picture of that. Are there special notes to that effect when we have a large disposal and a gain or loss on assets?

I also want to ask you about where I would find the marketable securities that are contained.... We're looking at the venture capital program. Where would I find the valuation of the assets that are within that program?

[Nicholas Leswick]

To answer your first question, the financial statement discussion analysis should give you a picture at the highest level of what some of the one-off gains are. We referenced these one-off gains to other revenues in the context of crown corporations here.

For more detail, you'd have to go to deeper levels into some of the departmental financial statements to understand what the nature of these gains was in such places as CMHC or in other places, such as the Bank of Canada with respect to our foreign exchange gains and losses.

To answer your second question, on venture capital, I would submit to the chair that I could work with the clerk to provide you more detail on the valuation of our venture capital program, but it is housed at BDC. If you went to BDC's financial statements you would see their initial investment and the valuation allowances against that initial investment.

I was just looking at that a couple of weeks ago. It's pretty clear in the footnotes.